Housing Inventory Falls

Housing shortages abound in markets across the country and that could set home shoppers up for a challenging spring. The nation’s housing supply saw the steepest year-over-year decrease in January in more than four years, dropping 13.6% annually, realtor.com® reports. The supply for homes for sale is now at its lowest level since realtor.com® began tracking such data in 2012.

The housing shortage shows no signs of easing in the coming months either, realtor.com® says. The volume of newly listed properties is down by 10.6% since last year.

“Homebuyers took advantage of low mortgage rates and stable listing prices to drive sales higher at the end of 2019, further depleting the already limited inventory of homes for sale,” says Danielle Hale, realtor.com®’s chief economist. “With fewer homes coming up for sale, we’ve hit another new low of for sale-listings in January. This is a challenging sign for the large numbers of Millennial and Gen Z buyers coming into the housing market this homebuying season as it implies the potential for rising prices and fast-selling homes—a competitive market. In fact, markets such as San Jose in Northern California, which saw inventory down nearly 40 percent last month, are also seeing prices grow by 10 percent while homes are selling at a blistering pace of 51 days.”

The housing shortage is present across price points too. It is most evident in the entry-level market, realtor.com® says. In January, homes priced below $200,000 saw a 19% drop in inventory. Among the mid-tier of properties—those priced between $200,000 to $750,000—inventories fell 12% year-over-year. In the upper-tier of properties—priced at more than $750,000—inventories dropped by 5.9% annually.

As inventories fall, home prices are rising. The median U.S. listing price increased by 3.4 percent year-over-year, reaching $299,995 in January, according to realtor.com®.

Gas Stoves Are Coming Under Fire In Housing Markets

Co-Living Trend on the upswing

Co-living is breaking out from being a niche real estate fad and becoming more mainstream, CNBC reports. The practice is serving as a way to get young adults out of their parents’ house and branch out on their own.

“Many of us thought that during the recovery, as the job market improved, the share living with their parents would peak and start falling,” says Richard Fry, a senior researcher at Pew Research Center. “That has not happened yet.”

But housing analysts believe co-living may do that. Co-living brings together a group of people in a shared space. Kitchens and work areas may be communal areas, but sleeping quarters are private. For young adults on a tight budget, co-living is a way to move out of their parents’ house while keeping their rents lower than living on their own in an apartment. Co-living setups also tend to offer more flexible lease terms.

Forty-eight percent of 690 commercial real estate practitioners recently surveyed by the National Association of REALTORS® have reported an increase in group or co-living apartments.

The number of co-living units is expanding rapidly, CNBC reports. For example, WeWork opened two locations under a brand called WeLive in the U.S. Its units in New York offer studios to four-bedroom units. The units tend to cost less than similar buildings in the area. Other companies, including Haven, Common, Ollie, Quarters, and others, are using similar business models in offering up shared common spaces.

Interest Rates Can Price Some Buyers In, Out

Low mortgage rates can be a cost-savings boon to home buyers. But even the slightest difference in rates can price some out.

The National Association of Home Builders, on its Eye on Housing blog, offers various scenarios of the price differences in affordability with interest rates. For example, take the median new-home price in 2020 of $345,908. The buyer gets a standard mortgage interest rate of 3.75%. If the interest rate moves up just a quarter of a percentage point, it would price about 1.3 million U.S. households out of the market, according to the NAHB’s analysis. The NAHB factored in a 10% down payment as well as an annual premium for private mortgage insurance, property taxes, and homeowner’s insurance into its calculations.

On the other hand, “a reduction in interest rates will price households into the market,” the NAHB says. Recent drops in mortgage rates that started at the end of last year have equated to about 44 million households that can now afford a median-priced new home. The drop in rates has also brought the median-priced new home within range to about 5.2 million additional households in 2020, the NAHB notes.

View this chart from the NAHB to view the difference that interest rate fluctuations can make on affordability.

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Land Sales Rise

Land sales and prices both rose across property types last year, and an uptick is likely to continue into 2020, if at a somewhat slower pace, according to the 2019 Land Market Survey, a joint survey from the REALTORS® Land Institute and the National Association of REALTORS®. The study acknowledges headwinds, with zoning regulations and obtaining financing as the top issues affecting land transactions. The survey is based on responses from more 800 real estate professionals involved in a land transaction over the past year.

Dollar sales volume on land rose, on average, by 2.2% from October 2018 to September 2019 compared to the previous year. Residential land sales saw the largest annual increase at 2.9%. Housing experts point to low mortgage rates as helping to boost sales volume and demand for land over the past year.

Respondents to the survey expect land sales to increase at about the same pace of 2.2% over the next 12 months. Sales will likely increase across types, but the largest increases are expected to continue with residential land at 2.8%, according to the report.

While the sales pace will likely continue, real estate pros surveyed expect prices to moderate and move at a slower pace for most types of land over this year. They predict that land prices will increase at 1.6% from September 2019 to September 2020.

Several challenges persist to the land industry. Forty percent of respondents said they considered U.S. economic conditions and access to financing and zoning regulations to be the top land issues. Nearly half of respondents said that residential land zoning ordinances have become more difficult over the past five years. Commodity prices were cited as an issue by 32% of respondents, followed by weather factors at 23%.

Homeownership Rate Climbs